Sen. OBAMA: Yeah. Well, it's going to start with dealing with the immediate crisis, both in the financial markets and in the housing market. And obviously, those things are connected.

On the housing market, to prevent foreclosures, I think it is important for us to create some bottom, some floor, give people some sense of where does this end. And so I am a strong proponent of the proposal that Chris Dodd and Barney Frank have put forward, having the FHA step in to help stabilize the market. It's not a bailout for borrowers or lenders, but what it says is we will rework some of these loan packages so that they're affordable. And, you know, everybody's going to have to take a haircut, the borrowers and the lenders, but it won't be as bad as if a foreclosure took place. So that'd be step number one.

Step number two, I think to stabilize and provide confidence in the financial markets it is appropriate for the Fed to take some of the actions that it has. But I think it is also important to make sure that we've coupled that with some new regulatory structures. If the Fed is going to be a lender of last resort to investment banks, then it is, I think, legitimate to make sure that those banks are subject to some sort of requirements, both in terms of liquidity and capital, to assure that we're not seeing excessive risks taken so that they get all the upside and the Fed gets all the downside. So that would be, I think, a second important step.

And then the third thing that I think is important for us to do is to understand that the economy long term has been out of balance for quite some time, even before this current crisis. I mean, we had high corporate profits, enormous rises in productivity over the last decade but wages and incomes have flatlined. And so you had a lot of concentrated wealth at the top, but ordinary folks were getting hammered with rising gas prices, rising costs of health care, rising costs of college tuition. And so creating a tax code that is more equitable and making sure that we're making investments in things like infrastructure and clean energy that can put us on a more stable long-term competitive footing, I think that has to be part of the package as well.

BARTIROMO: I want to ask you about the mortgage plan.

Sen. OBAMA: Sure.

BARTIROMO: But since you ended with taxes, let me pick up right there, for investors.

Sen. OBAMA: Yeah.

BARTIROMO: How do you plan to change the tax code when it comes to capital gains? How high will that 15 percent rate go?

Sen. OBAMA: Well, you know, I haven't given a firm number. Here's my belief, that we can't go back to some of the, you know, confiscatory rates that existed in the past that distorted sound economics. And I certainly would not go above what existed under Bill Clinton, which was the 28 percent. I would--and my guess would be it would be significantly lower than that. I think that we can have a capital gains rate that is higher than 15 percent. If it--and if it, you know--when I talk to people like Warren Buffet or others and I ask them, you know, what's--how much of a difference is it going to be if it's 20 or 25 percent, they say, look, if it's within that range then it's not going to distort, I think, economic decision making. On the other hand, what it will also do is first of all help out the federal treasury, which is running a credit card up with the bank of China and other countries. What it will also do, I think, is allow us to make investments in basic scientific research, in infrastructure, in broadband lines, in green energy and will allow us to give us--give some relief to middle class and working class families who have been driving this economy as consumers but have been doing it through credit cards and home equity loans. They're not going to be able to do that. And if we want the economy to continue to go strong, then we've got to make sure that they're getting a little relief as well.

BARTIROMO: But it's not just the Warren Buffets of the world who own stocks, so...

Sen. OBAMA: Of course not.

BARTIROMO: ...let's hypothetically say that...

Sen. OBAMA: Right.

BARTIROMO: ...cap gains tax goes from 15 percent to 25 percent.

Sen. OBAMA: Right.

BARTIROMO: You're impacting a lot of people.

Sen. OBAMA: Right.

BARTIROMO: A hundred million Americans own stocks today.

Sen. OBAMA: Absolutely.

BARTIROMO: So it's not just the rich.

Sen. OBAMA: No, no, no, absolutely. And that's why I think that it may be, for example, that you could structure something in which people with certain incomes were exempted from this increase and it would stay at 15. The broader principle that I'm interested in is just making sure that we've got a tax code that is fair for all Americans. And I think it is not unreasonable to say--you know, I know that we'll get some arguments from some folks on this, but it's not unreasonable to say that those of us in the upper brackets have benefited disproportionately from a globalized economy; that those benefits have been compounded by the Bush tax cuts and that for us to roll back some of those tax cuts and to put this economy on a more stable fiscal footing and to make investments in the American people so that they can afford a decent life, that that is actually good long term for our economy and also good for investors and Wall Street.

BARTIROMO: So what about the top marginal rate for ordinary income? Who ought to pay more and who should pay less?

Sen. OBAMA: Well, you know, what I've said is that we should go back to probably a top marginal rate of 39 percent what it was before the Bush tax cuts. So I would roll back those Bush tax cuts, I would not increase taxes for middle class Americans and in fact I want to provide a tax cut for people who are making $75,000 a year or less. For those folks, I want an offset on the payroll tax that would be worth as much as $1,000 for a family. Senior citizens who are bringing in less than $50,000 a year in income, I don't want them to have to pay income tax on their Social Security. And as part of my overall approach to housing, I actually want to provide an additional 10 percent mortgage deduction, a credit, mortgage interest credit, for those who currently don't itemize. Because if you live in a house that's pretty expensive, like I do, and I itemize, I get a pretty big break from Uncle Sam. If you own a $100,000 house and you're making 65, $75,000 a year, you're not getting that same deduction. I think that they deserve a break as well. That will actually help relieve some of the pressure on homeowners.

BARTIROMO: But can you really look at this sort of like an umbrella standpoint? I mean, we are in very, very unique times right now.

Sen. OBAMA: Yes.

BARTIROMO: Why raise taxes at all in an economic slowdown? Isn't that going to put a further strain on people?

Sen. OBAMA: Well, look, there's no doubt that anything I do is going to be premised on what the economic situation is when I take office. I'm going to be sworn in in January, we don't know what the economy's going to look like at that point. And, you know, the thing you can--you can be assured of is that I'm not going to making these decisions based on ideology. I'm not a dogmatist. I know that some, you know, my opponents to the right would like to paint me as this wooly-eyed, you know, liberal or wild-eyed...

BARTIROMO: You're not a liberal?

Sen. OBAMA: The--but my attitude is that I believe in the market, I believe in entrepreneurship, I believe in opportunity, I believe in capitalism and I want to do what works. But what I want to make sure of is it works for all America and not just a small sliver of America. And if it turns out--if somebody can make a persuasive argument to me that, you know what, what we need at this juncture, at this particular point in time is a different set of policies than some of the ones that I've proposed, I'm always going to listen to people. Because I think one of the problems, in fact, with the Bush administration has been its rigidness when it comes to economic policy. I mean, you ask them any question, they'll say tax cuts. It doesn't matter what the problem is, if it's, you know, our trade deficit: tax cuts. If it's, you know, slowdown in manufacturing: tax cuts. You know, at a certain point, you know, if you've only got one arrow in the quiver, then you're going to have problems.

BARTIROMO: Let me move on from taxes. I don't want to spend all the time there. Let's talk about small business. This is the one area of the economy that really is creating jobs, small business.

Sen. OBAMA: Yes, absolutely.

BARTIROMO: You want to index the minimum wage to inflation, we'll see the minimum wage go up every year. You are looking to strengthen the unions. Basically, making costs go up for small business. Why put a further strain of expenses, higher expenses, on the one place in the economy that's actually creating jobs?

Sen. OBAMA: Well, actually, you know, that's not entirely true. It is true that I think that having the minimum wage go up every 10 years is a bad idea and it's not good for small businesses, because they get socked with sudden jumps as opposed to something more gradual that they can build into their cost structures. It is true that I think that unions are a useful thing. But generally that's not affecting the average small business, that is typically much more targeted at large companies who, again, wages and incomes have not gone up for the average worker over the last seven years. There's a reason for that, and that's a problem. I actually want to provide more tax breaks to small businesses, because I think they are the primary generator of income.

And one of the areas that I want to help small businesses on is their health care costs, which are crushing them. And if you talk to a lot of small business owners, not only are they having problems if they provide health care to their employees, but they're also having problems paying health care for themselves. And if we can provide them significant relief there, then I think that there are going to be a whole bunch of small businesses who are going to be much more successful in building their businesses and expanding it over time.

BARTIROMO: But you say that, but we've had small businesses on, they're terrified. They feel that their costs are about to soar.

Sen. OBAMA: I know. Small businesses often get terrified because people ramp up. The chambers of commerce, anytime you talk about the minimum wage, the sky is falling. The sky doesn't fall. And as I said, the--what is important is making sure that this happens over a gradual period of time. Instead of us lurching back and forth, what I want to do is to create a climate for sustained economic growth. Small businesses are going to be the heart of that, and that's why we're going to give a large amount of support to small businesses in the form of tax breaks for investment and in making sure that their health care costs are dealt with.

BARTIROMO: Let's talk about spending. You've got a $400-plus billion deficit. How do you plan to pay for the new health, education, you mentioned green technology, social programs...

Sen. OBAMA: Right.

BARTIROMO: ...in the middle of a recession?

Sen. OBAMA: Well, I tell you what...

BARTIROMO: Away from tax cuts?

Sen. OBAMA: Right. The two points I would make. Number one, as I said, I'm going to have to take a look at what revenues are coming in when I take office because, you know, I'm not ideological and I think it is very important for us to stick to a principle of pay as you go. If I'm going to cut taxes for the middle class, as I've proposed, that means that I've got to either end some tax breaks elsewhere or cut spending. And if I want to increase spending, then I've got to find offsetting revenues or cut programs that aren't working. That's a principle that I believe in strongly and I will run on and implement when I'm president.

What's interesting, though, is The Wall Street Journal, I think--actually a columnist looked, in The Wall Street Journal, at does Obama's policies in fact add up? Do the numbers add up? And the conclusion was, yes. Because not only have I called for an end to the war in Iraq, which would not provide all the money that's being spent there--some of that's going to have to go to resetting our military, dealing with veterans and so forth--but there will be some money that we can use for other things.

Number two is the rollback of the Bush tax cuts on the top 1 and 2 percent. That will in fact create additional revenue. And the third thing is the cap and trade system that I've proposed to deal with climate change and to increase energy independence. That potentially generates billions of dollars that we can reinvest in solar, wind, biodiesel, creating jobs here in America that can't be exported. And so when you tally it all up, all my proposals pay for themselves.

Now, as I said before, it could be that revenues are so short in a year's time that we've got to make some assessments. And I am not going to initiate programs that can't be paid for.

BARTIROMO: So name three spending programs you would cut to balance the budget.

Sen. OBAMA: Oh, you know, there are probably some weapons programs that I think are not serving our national security interests that need to be examined, and we've got to do an audit there. There are reforms that need to be made in our purchasing processes, where--simple things, you know. If we actually made sure that every government employee had a single, you know, debit card or credit card, then negotiated with large purchasers to get the discounts that any other large purchaser would get, we could lop off 10 percent of some of our major purchases by the federal government. Our travel allowances and expenses are a major problem. We could save several billion dollars just in how we set up government travel. So there are a whole bunch of areas where we can make some significant savings.

I will tell you, though, that historically when--you know, the fact is that the federal government primarily spends its money on Social Security, on Medicare and Medicaid, and on defense. And that's the bulk of our spending.

The biggest thing we've got to do is get control of our health care spending, and that's why the health care plan that I've proposed, although costing some money in the front end--we've got to help rural hospitals invest in, you know, health IT. We've got to make sure that we are bringing people into coverage so that they're not going to the emergency room. Short term, that will cost us some money. Long term, the more we emphasize prevention, the less likely we are to pay huge bills down the road. That's the only way we're going to get control of health care inflation. And if you talk to any executive, as well as any actuary who's looking at government spending, our biggest crisis looming in the horizon has to do with our health care costs. And the only way to really solve it long term is to make sure that we are making for a healthier America and improving the quality of care so that we get more bang for our health care dollar.

BARTIROMO: How about trade? You've made the point that you want to improve relations around the world...

Sen. OBAMA: Yes.

BARTIROMO: ...and yet you want to renegotiate NAFTA, you are not in favor of some other trade policies.

Sen. OBAMA: But I'm in favor of some.

BARTIROMO: OK.

Sen. OBAMA: Yeah.

BARTIROMO: Tell me about the trade policies that you'd like to look at...

Sen. OBAMA: Yeah.

BARTIROMO: ...and particularly NAFTA, renegotiating that.

Sen. OBAMA: Yeah.

BARTIROMO: Why potentially impact the one area of the economy that's actually doing very well, exports and trading, and opening up markets for American companies?

Sen. OBAMA: Well, look, I believe in trade and I've said it repeatedly. And, you know, I have voted for trade agreements. I voted for the Peru Trade Agreement, much to the chagrin or some people who objected about it. I voted for the Oman trade deal. It is true that I voted against CAFTA and I voted--and I am concerned about NAFTA because they don't have the environmental and labor protections written into this legislation that ensure some basic standards, make sure that child labor laws aren't being circumvented, making sure that you don't have forced labor. I think it is important in our dealings with China to make sure that we are tougher bargainers. My problem with our trade agreements right now is not that I feel we can't compete in the global economy. I think we've got the best workers on earth. I think the problem is is that we're not very good bargainers. We--our trade mentality dates back to the '60s and the early '70s when we were so dominant in the world economy that basically if people sent their goods into this country without reciprocity, it wasn't really going to have a dent on our economy. Well, the fact is China, Brazil, Korea, you know, they're not your dad's China, Brazil or Korea. They are now major competitors of ours. We should want real trade with them, but it's got to be on a reciprocal basis. And we should put some pressure on them to improve how they treat workers, to deal with issues of environmental standards, to deal with safety standards. And part of the problem that we've got right now in our trade agreements is that US companies may move over there, get out from under basic safety standards that are important to US consumers, then the goods get shipped back into the United States and suddenly we've got toys with lead paint on them.

That is not good for US consumers and I don't think it's good for business long term. But, you know, one notion I want to dispel is the notion that somehow I'm opposed to free trade. I think it is important for us to have a trade regime. And I think it's good that China and India are growing. Ultimately they may be markets of ours and, you know what, there's just a human element to wanting to see billions of people scratch their way out of poverty. That is in our long-term interest.

BARTIROMO: What happens if the Mexicans and Canadians say, `We don't want to renegotiate.' Do we go back to the policy in place before NAFTA?

Sen. OBAMA: Well, I think that, you know, let me have those conversations with the president and the prime minister and see if we can negotiate something that makes sense for all sides. I mean, keep in mind, Mexico has some of these similar problems, you know, some of the promises that were made about the improvements in the standard of living for Mexico. Workers have not been borne out as a consequence of NAFTA. Part of the problem we're having with immigration right now has to do with a much more efficient US agricultural and agrobusiness operations going into Mexico and decimating Mexican farmers. They have been displaced first to Mexico City and other urban areas, and increasingly they come into the United States.

And so, again, the principle that I have in general when it comes to economic policies: a belief in free markets, a belief in opportunity, a belief in trade, but wanting to make sure that in all these areas that somebody's thinking about the little guy; that somebody is making sure that the economy is working for everybody and not just some people. And that, I think, is a basic difference between myself and George Bush and increasingly, it appears, John McCain, as well.

BARTIROMO: But you want to put pressure on the companies and the people that are actually creating jobs, during a recession.

Sen. OBAMA: Well, you know, I think part of my argument is part of the reason we're in a recession is because we have an unbalanced economy. Look, you know, Henry Ford was the first one to say, `If I don't pay my workers enough to buy my cars, my business isn't going to be around for a long time.' Part of the genius of America has always been that we have a shared prosperity and a broad-based middle class, and that we make investments in roads and bridges and other infrastructure that allows the market to work efficiently. And we've got a regulatory system so that investors can trust the market and don't feel like insiders are going to be taking advantage of them. That's what makes the market run. And when we lose that balance, what ends up happening is in the short term you've got some people who make out like bandits. And the only reason that we haven't seen some of these problems in the US economy previously is because consumers had been driving this, even though their wages and incomes haven't been going up, because they've been able to use their credit cards and home equity lines as an ATM. That's gone away. And so the question now is who's going to drive the economy, if not consumers? And the only way that we can make sure that consumers are able to drive that economy is if in fact they've got some money in their pockets. And right now they don't, because they are getting squeezed hard.

BARTIROMO: Final question, Senator.

Sen. OBAMA: Yeah.

BARTIROMO: And this is just in the news right now, away from business, the church bulletins. A lot of people say that they were--are anti-Semitic, anti-American. How often did you read them? Did you find them troubling?

Sen. OBAMA: You know, the--you know, I've, I think, talked thoroughly about, you know, the issue with Reverend Wright. And, you know, everybody, I think, who examines the church that I attend knows that it is a very traditional, conventional church. Reverend Wright has made some, you know, troubling statements and some appalling statements that I have condemned. He's the former pastor of that church. And I think that--and when I travel around the country, what people are really interested is making sure that, if I'm going to be the next president, that I can actually help them stay in their homes, get a job, send their kids to college. That's something that's shared by people across races, religions. And part of what I hope to do in this campaign and as president is to get us beyond these divisions that distract us from our common challenges and our common opportunities and move the country forward.

BARTIROMO: Senator, would you like to add anything else?

Sen. OBAMA: I had a wonderful time. I hope I get a chance to talk to you again.

BARTIROMO: Do you think that the Fed made the right move in terms of bailing out the financial system? Final question. A final--you know, I'm just trying to do it on BusinessWeek--I promise you, I promise you.

I'm doing a piece for BusinessWeek on you for Friday and I'm trying to do both CNBC and BusinessWeek.

Sen. OBAMA: Right.

BARTIROMO: That's why, I've tried to do both.

Sen. OBAMA: Well, now that--now this is going to be really good story, because she got at least five final questions. Absolutely.

BARTIROMO: (Unintelligible). No pressure, no pressure.

Sen. OBAMA: No, no, no, I don't mind. The--no, no. Look, the--I think that--you know, I wasn't privy to Bear Stearns' balance sheets. I think there's no doubt that we want the Fed stepping in in emergencies, and no other government agency could step in sufficiently, quickly to prevent what could have been a domino effect. But the one, you know, basic principle that I think is important is that if the Fed is going to be a lender of last resort to investment banks, then they're going to have to be subject to some of the same regulatory requirements that commercial banks are subject to. And I think Henry Paulson admitted as much in some of his statements yesterday. And I know that the Senate Banking and Finance Committees are going to be examining the nature of this transaction to make sure that it was fair to all parties involved.